China’s economy set for interest rate cut, liquidity boost after Beijing promises ‘timely’ support
- China’s cabinet said on Wednesday that there will be ‘timely’ reduction in reserve requirement ratios (RRR) and other policy tools to support the economy
- The People’s Bank of China (PBOC) could take measures as early as Friday, including cuts to its key policy interest rates
China’s central bank is likely to cut its key policy interest rate for the second time this year and free up more liquidity in the banking sector to help bolster a faltering economy hit by the country’s worst coronavirus outbreaks in two years.
Expectations for further easing from the People’s Bank of China (PBOC) are running high after China’s cabinet said on Wednesday that there will be “timely” reductions in reserve requirement ratios (RRR) and other policy tools to support the economy.
“In light of changes in the current situation, we will encourage large banks with higher provisions to lower provision ratios in an orderly manner and will use monetary policy tools, including RRR cuts, in a timely way,” the State Council said in a statement after a regular meeting chaired by Premier Li Keqiang.
The RRR sets the minimum amount of reserves that must be held by banks and cannot be loaned out.
Based on its track record, we believe it is very likely that the PBOC could cut RRR by 50 basis points for most banks in the next several days
The State Council said it will increase support to sectors and small companies that have been hit hard by the outbreaks and lower overall financing costs for industries.